Overall economic performance before 1871

• Broadberry, Custodis and Gupta (2015) have recently applied

the methodology of historical national accounting to make use
of all the currently available data series to produce the series of
GDP.

• Utilizing the series on wages, grain prices and cloth prices, the
estimation of GDP also makes use of data on agricultural and
industrial exports, crop yields and cultivated acreage, cloth
consumption per capita, urbanization rates and government
revenue to build up to aggregate output from sectoral
estimates for agriculture, industry and services.
 Method of estimation of GDP

• Agricultural output is constructed using data on population, wages and

prices to estimate domestic demand, and data on exports for foreign
demand. These demand-based estimates are then cross-checked over the
long run for consistency with agricultural supply, and estimated using data
on crop yields and the cultivated land area.

• Industrial production for the domestic market can also be estimated from
information on wages and prices, but cross-checked against independent
information on cloth consumption per capita. Output of the export
industries is based on the excellent export data collected by the European
East India companies. A weighted average of the output of home and
export industries is used to chart the movement of total industry and
commerce.

• For services, the output of the government sector is measured using data
on tax revenue, while the size of the private services and rent sector is
assumed to move in line with the urban population.
GDP by Sectors, 1600 - 1871
• Total industry and commerce grew rapidly between 1650
and 1801, driven particularly by exports.

• The agricultural sector also grew, but less rapidly.

• Since agriculture was the largest sector, the growth of total

output was also quite modest before 1801.

• Total output stagnated between 1801 and 1841 as modest

agricultural growth was offset by deindustrialization, due
to the collapse of industrial exports as Britain replaced
India as the world’s major producer and exporter of
cotton textiles.

• There was a return to modest total output growth

between 1841 and 1871 as industrial growth returned and
agricultural growth accelerated.
 Per capita GDP comparison

India’s per capita GDP declined during the seventeenth and eighteenth
centuries before stabilizing during the nineteenth century.
• India’s comparative position deteriorated from a GDP per capita of more
than 60 per cent of the British level in 1600 to just 14.5 per cent by 1871.

• The relative decline occurred fairly steadily throughout the period.

• The Great Divergence was therefore already under way during the early
modern period, so that developments during the colonial period cannot be
seen as the root cause of the divergence.

• Similar pattern of declining GDP per capita during the seventeenth and
eighteenth centuries occurred in China as well.

• In both countries this was driven mainly by trends in agriculture, because

population growth outstripped the growth of the cultivated land area and
crop yields did not increase sufficiently to offset the decline in the land-
labour ratio.

• In both countries, workers remained on the land, holding down agricultural

labour productivity, in contrast to developments in northwest Europe.

• India lacked the state institutions needed to underpin the hard work,
investment and innovation that allowed Britain and Holland to break free from
the Malthusian trap (Parthasarathi 2011).
 Aggregate economic performance since 1871
• We have more detailed historical national accounts for the period after
1871 constructed by Heston (1983) and Sivasubramonian (2000).
• Per capita incomes grew slowly during the late nineteenth century,
but stagnated during the first half of the twentieth century.

• Since 1947, the GDP per capita has grown at a positive rate,
indicating a transition to modern economic growth. However, this
growth rate has lagged behind that of East Asian countries coming
out of colonial rule.
 Conclusion
• In this paper we have covered four centuries of Indian economic
performance and living standards.

• Using data on real wages and GDP per capita, we have established
that the Great Divergence was already under way during the early
modern period.

• As early as 1600, living standards in India were already lower than

in Britain, and the gap widened during the seventeenth and
eighteenth centuries as real wages and GDP per capita fell in India
and rose in Britain.

• By the early nineteenth century, Indian real wages and GDP per
capita stabilized at a low level, and despite some signs of a small
increase in the late nineteenth century, the rest of the colonial
period was characterized by stagnation.